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Fed's dovish stance lifts FTSE

For the FTSE, Iraq worries have been banished for the time being, as the Federal Reserve seems distinctly relaxed about the path inflation is taking. This isn’t a signal to go all out on equities, but it means that one reason for caution has been taken away, and traders can rest easy in the continuing assumption that US interest rates are going nowhere until the middle of 2015.

The Fed’s dovish stance has allowed many of the recent underperformers to bounce back, with Ashtead’s shareholders returning and pushing the shares up 3.5%. Even so, the index still has to break 6880 to avoid the impression that we are still struggling to find a catalyst for a sustained move higher for the FTSE 100.

US markets slightly overbought

Jobless claims and a strong Philadelphia Fed reading have added to the bullish picture for stocks in the US, but the reaction has been muted at best after the strong gains of yesterday. There should now be a greater move from the dollar towards equities, and the resumption of all-time highs on the S&P 500 is an encouraging sign. Markets do look a little overbought again now, which signals a quiet end for the week tomorrow, with some booking of profits. The lessons of this week are that no dip is too small to be bought, and that it still remains unwise to argue with the post-2009 rally.

Traders rush to gold and silver

With the dollar slumping this afternoon, the rush to gold and silver has been made with almost indecent haste. Any lingering hopes of a slightly more hawkish Fed tone have been junked, as the US central bank showed itself decidedly relaxed about inflation. Even so, the buying has more of a ‘closing of shorts’ feel to it, as those hoping for a different Fed outcome seek to exit the market quickly. If gold can retake $1300 then all may be set for another charge to $1309.

The Fed and Iraq are driving up Brent, as the commodity looks to repeat the mid-2013 spike. It looks like any US intervention in Iraq will take time to materialise, so for now the market is continuing to worry about supply disruptions.

Cable pushes through $1.70

Today is finally the day when GBP/USD has pushed firmly through $1.70. But this is not down to Mark Carney, rather a weaker dollar is the catalyst here. $1.7160 becomes the target now, above the August 2009 peak. Dollar weakness is here to stay it seems, as Janet Yellen continues to remove the rationale for holding on to the world’s reserve currency.

Risk on is back, it seems, and this will cause howls of pain in the eurozone too, as the Federal Open Market Committee undoes all the careful work of the European Central Bank in pushing down the euro.

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